Purchasing lead time is the interval between when the decision is made to acquire goods and when the goods are received. This lead time is comprised of the following elements:
- Order preparation time
- Supplier lead time
- Time in transit from the supplier to the recipient
- Inspection time
- Putaway time
Purchasing lead time must be built into the order placement process, so that goods are ordered sufficiently far in advance to assure that they are received in time for their intended use. Consequently, purchasing lead time is quantified in a material requirements planning system. Without due consideration of this lead time, a company will suffer from ongoing product stockout conditions, as well as production runs that cannot be completed due to missing parts.
One of the best ways to improve the performance of a business is to reduce its purchasing lead time, so that it can be more responsive in making its own deliveries to customers.